It used to seem like wherever AAPL went, so went the market’s psychology. That isn’t the case today, because AAPL’s solid earnings aren’t lifting all boats in pre-market trading. This continues a recent trend where caution prevails despite financial and info tech companies crushing earnings expectations.

Volume was light yesterday and things could be slow this morning before the Fed announcement, which is due at 2 p.m. ET. Pre-market trading showed slight gains as investors reacted to AAPL earnings, and markets in Europe rose after Asian stocks faltered slightly.

Apple Shines

Some of the late-day gains yesterday seemed predicated on expectations of solid results from AAPL, and that’s pretty much what investors got. AAPL recorded fiscal Q2 earnings per share of $2.73, topping the average analyst projection of $2.69. Revenue of $61.1 billion came in as the Street expected, and the company unveiled stronger-than-expected revenue guidance for the current quarter.

Among the only fiscal Q2 blemishes was a miss on iPhone sales, which came in at 52.2 million vs. the 53 million analysts had expected. However, in its press release AAPL touted robust sales of the more expensive iPhone X, saying customers continue to choose it more than any other iPhone. The company also emphasized positive performance in its software and services area. Shares of AAPL rose 4.5% in pre-market trading early Wednesday, climbing back toward recent highs above $175 a share. The stock might have gotten some help, too, from AAPL announcing a $100 billion share buyback plan and a 16% dividend increase.

AAPL became the latest info tech company to deliver a positive report over the last two weeks, rounding out the so-called “FAANG” companies for the current earnings season. Revenue rose an average of 28% in the most recent quarters for AAPL, Alphabet (GOOG, GOOGL), Facebook (FB), and Amazon (AMZN), The Wall Street Journal noted.

Waiting for the Fed

With AAPL in the rear view, focus turns to the Fed meeting conclusion. Chances of rates holding steady sit at 94%, according to Fed funds futures. The tables turn as June approaches, with a 94% chance of a 25-basis point hike, which would be the second one of the year. Chances of a third hike by September sit near 75%, while odds are around 50-50 for a fourth rate rise by the end of the year, according to the futures market. That’s likely the metric to watch this afternoon, because while three rate rises are pretty much built in, market expectations for a fourth could be affected by language in the Fed’s post-meeting statement.

It’s not all about the Fed this afternoon. Tesla reports after the close. As with previous reports, analysts are squarely focused on the Model 3.

There’s a growing sense that the market built strong Q1 earnings into stock prices during the rally late last year that extended into January, which could explain what’s been a rather lackadaisical reaction to the exceptional earnings reports that continue to come out every day.

Auto Sales Skid

Speaking of lackadaisical, consider April U.S. auto sales. With General Motors (GM) no longer issuing monthly reports, one of the most closely watched benchmarks is Ford (F), and the news didn’t exactly light up the roads as F posted a 4.7% decline in sales from a year earlier. Sales of F’s pickup trucks climbed 0.9% but SUV and passenger car sales fell 4.6% and 15%, respectively. Japanese car makers also suffered in a sluggish U.S. market in April, though Fiat Chrysler (FCA) bucked the trend with decent gains. One concern is that higher interest rates might be keeping customers away from the car lots. In general, auto sales continue to trend lower following the record highs of 2016.

Earnings show no sign of stalling, however, as the average S&P 500 company has beaten Wall Street’s projections by about 8% on the bottom line, and approximately 80% of companies reporting so far have come in ahead of analysts’ expectations. Guidance is also averaging a bit above expected levels. Mastercard (MA) became the latest company to exceed Wall Street analysts’ expectations early Wednesday.

After stumbling Monday following early gains, stocks turned around early losses Tuesday as two of the three major indices finished higher. Only the Dow Jones Industrial Average ($DJI) missed out, dropping for the third-straight day while the S&P 500 (SPX) and Nasdaq (COMP) gained ground. With retail earnings the next big event, the question is what the next big catalyst might be for the market.

Though some of the lack of pep in the face of strong earnings could reflect the build-up earlier this year, another factor keeping stocks on the defensive could be fears of inflation. If bond yields were rising simply due to signs of a robust economy, that would be one thing. Instead, however, yields seem to be gaining ground at least in part around inflation concerns, and that’s something the market typically doesn’t like to see. The benchmark 10-year yield continues to rest just below 3%.

After Monday’s release of Personal Consumption Expenditure (PCE) prices showed inflation hitting the Fed’s 2% year-over-year target in March, the April ISM Index on Tuesday also reflected rising costs. The prices index component jumped to 79.3 in April from 78.1 in March, marking the highest level for April since 2011. The rising price component reflects manufacturers paying higher prices for raw materials as well as worker shortages, the ISM said in a press release.

We haven’t talked much lately about volatility, simply because it hasn’t been a major factor like it was earlier this year. The VIX has been trading in the 15-17 range over the last week without too much deviation. We’ll see if that changes in light of AAPL earnings and the Fed meeting, as well as the jobs report coming up Friday.

FIGURE 1: DOLLAR STORMS BACK.

This year-to-date dollar index chart shows the index making its highs so far this year back in early January before sinking to below 89 by early February. Now it’s on the rise again and testing the January highs. Weakness in the dollar helped U.S. company earnings in Q1, but Q2 could provide less of a dollar tailwind at the current rate. Data source: ICE. Image source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Dollar Springs to Life: Like daffodils blooming in spring, the dollar shows signs of vigor after a long hibernation. The dollar index blew past resistance at 92 and 92.5 early this week to hit its highest level since early January. This dollar strength came as the market indicates growing chances of another Fed rate hike before mid-June and possibly four rate hikes this year instead of the three originally projected by many analysts. The dollar’s revival comes as many U.S. multinationals note in their earnings calls that the weak dollar in Q1 helped their international sales. In that sense, dollar strength could be a mixed bag. While the strong dollar can mean lower prices for oil and imported goods, it can sometimes hit company bottom lines. If the dollar stays at these levels or rises, the effect might be seen in Q2 earnings. However, the dollar index at 92 isn’t historically a very high level, considering it was over 100 as recently as early 2017.

Did May Begin Early? Maybe the month in that old mantra, “sell in May and go away” needs to be changed this year. After a fierce rally in January, stocks plunged in February and have traded mostly sideways since then. They currently aren’t far off the year’s lows. The “sell in May” saying originates from historic records showing that stocks tend to perform better in the fall and winter, though past isn’t precedent. While there’s no telling what the market might do this month or this summer, it’s worth noting that sentiment has been somewhat fearful lately and more money has been flowing into bond markets, traditionally a sign of caution. On the other hand, as Briefing.com points out, money often flows into stocks at the start of the month as people sometimes see a new calendar page as an opportunity to put new funds to work. Perhaps some of that began to happen yesterday as the SPX reversed early losses.

Tech Talk: Long-term investors might not think too much about technical matters, nor should they, necessarily. On the other hand, even if you’re in the market for the long run, you might want to keep your eye on a key level that the S&P 500 Index (SPX) approached yesterday, and that’s the 200-day moving average. The level to watch is around 2613. If the SPX pushes below that and stays there, it’s possible some additional selling pressure could surface. The other possibility is that the SPX once again finds some buying at that level, something that’s helped it bounce back in other recent instances where it tested the 200-day.

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